TITLE

Appendix A: Assumptions of Computations of Portfolio Longevity

PUB. DATE
August 1996
SOURCE
Journal of Financial Planning;Aug1996, Vol. 9 Issue 4, p66
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
The article discusses about some assumptions of Computations of Portfolio Longevity. Some assumptions were necessary for preparation of the "portfolio longevity" charts in this article. During the first year, according to Ibbotson data, stocks returned ten percent, and bonds returned five percent. Therefore, stocks increased in value to $550,000 during the year and bonds to $525,000, giving a new portfolio value of $1,075,000. This leaves $1,033,800 in the portfolio. At the beginning of the second year the portfolio is rebalanced to the 50/50 allocation; stocks begin the year with a value of $516,9OO, as do bonds. A portfolio's "longevity" is the number of years until the portfolio's year end value dips below zero dollars. Lifetime asset allocation for virtually all clients can be managed through use of the allocation equations. These equations result in a gradual phase-down of stocks during a client's lifetime. Conservative-risk investors do not suffer any immediate disadvantage versus other investors in terms of income. The initial withdrawal rates for tax-able portfolios are lower than for tax-deferred portfolios of the same portfolio longevity.
ACCESSION #
5560411

 

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